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Alberta - August 8, 2016

The past year has been educational for those who took Alberta’s previously strong energy economy for granted. We’ve learned that our economy is a bit like an orchid: finicky, it responds to changes in its environment in drastic ways. And, as with orchids, many attempt to discover the key to growing it successfully.

The AER’s ST98: Alberta’s Energy Reserves and Supply/Demand Outlook report is as close as you can come to an everything-you-need-to-know guide for what’s happening in the world of Alberta energy development. So, from this information-packed megareport, here are five things to know about Alberta’s energy economy:

  1. What goes up must come down. Oil prices might not be affected by gravity, but—as most people will have realized by now—they experienced an abrupt and unplanned descent that began in 2014 and deepened in 2015. West Texas Intermediate (WTI), which is the North American benchmark price, decreased by 47 per cent to an average of US$48.79 per barrel in 2015, and Western Canadian Select and Canadian Light Sweet prices decreased by 51 and 38 per cent respectively. The AER is projecting modest oil price increases beginning in 2017. The current base WTI forecast puts oil back at US$81 per bbl in 2025.
  2. Anything that can go wrong will go wrong. Despite an overall 11.9 per cent growth in raw bitumen production in 2015, Murphy’s Law was the order of the day in Alberta’s oil sands. Already beleaguered by low prices and market-access challenges, bitumen producers also dealt with a number of operational problems that affected production numbers.
  3. Even your barbecue feels the pinch. In a further instance of doom and gloom, propane prices dropped by 88 per cent in 2015—from $10.65 per gigajoule to $1.33per GJ—which, when combined with record-high inventory levels, made for a tough year for propane producers. However, the current low price has led several operators to expand Alberta’s petrochemical industry in order to make use of the cheaper propane. This, together with a Government of Alberta royalty credit program that aims to encourage new facilities to use methane and propane as petrochemical feedstocks, is expected to increase demand for propane to 7.2 thousand cubic metres per day—a 65 per cent increase—by 2025.
  4. You need to up your fluid intake. One natural gas liquid—pentanes plus—has been getting all the attention. Production rose by 20 per cent in 2015, and although production in coming years is expected to remain relatively flat, demand is soaring. That’s because pentanes plus is used to dilute heavy crude oil and nonupgraded bitumen so that they can flow properly through pipelines. And the AER thinks that bitumen production will probably continue to increase (by almost 60 per cent by 2025), generating an ever-increasing need for pentanes plus.
  5. The sun will come out tomorrow. And you can bet your bottom dollar that tomorrow, Alberta’s energy resources will be worth more than they are today. The total value of Alberta’s resource production did fall in 2015 because of the low price environment and is expected to fall again in 2016, but that drop was still just a drop in the bucket compared to what those resources could be worth in 2025. The numbers say it best: $67 billion in 2015; $148 billion in 2025. It’s all projections, but you can do the math.

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